Individuals express a surprisingly pervasive error that I refer to as the “government as consumer” fallacy.
The picture underlying this fallacy is relatively straightforward. Government services, such as health care, education, national defense, and so on, “cost” us as a society. We are able to pay for them only because of all the wealth that we generate in the private sector, which we transfer to the government in the form of taxes. A government that taxes the economy too heavily stands accused of “killing the goose that lays the golden eggs” by disrupting the mechanism that generates the wealth that it itself relies upon in order to provides its services.
Thus the government gets treated as a consumer of wealth, while the private sector is regarded as a producer. This is totally confused. The state in fact produces exactly the same amount of wealth as the market, which is to say, it produces none at all. People produce wealth, and people consume wealth. Institutions, such as the state or the market, neither produce nor consume anything. They simply constitute mechanisms through which people coordinate their production and consumption of wealth.

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